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Economic Highlights
US, China Policies
INDIA MUST GUARD AGAINST ONSLAUGHT
By Shivaji Sarkar
New Delhi, April 15, 2010
India needs to be cautious in its dealings with the US on
the one side and China on the other. More so when it is time
for the country to provide a global model. However, it has
little to cheer from the visits of US Treasury Secretary
Timothy Geithner or External Affairs Minister SM Krishna’s
visit to China.
Washington is eyeing for a $ 600 billion investment in India’s
infrastructure, as the returns are very high. Closer ties with
China saddles India with a massive trade deficit of $ 15.8
billion. It is no better for the US, which has a trade deficit
of $ 227 billion as it imports $ 296 billion worth of items
from China and exports only $ 69 billion products. This
happens as Beijing keeps its currency, the Yuan artificially
low.
As New Delhi accepts large investments from the US in
infrastructure, it suffers on two counts – cost of
infrastructure development goes up and the country’s
manufacturing sector continues to remain weak. However,
Beijing has cleverly taken this advantage from the US. The
major merchandise export to the US from China is from the
manufacturing sector that produces at extremely, often
artificial, low costs. It is hitting the US economy hard and
if India does not learn the lessons from the US, then it would
hit its economy harder.
The US has primarily suffered because it ignored the growth of
the Chinese manufacturing sector, which was being fuelled by
US imports. China simultaneously took the economic and
financial initiative to create a safety net for itself so that
the US could not suddenly withdraw from its market. It
invested heavily to create a dollar reserve. In November 2009,
China owned $789 billion in the US Treasuries, 33 per cent of
the total $2.4 trillion outstanding. This makes it the largest
owner. Many are concerned that it gives China political
leverage over US’ fiscal policy.
The high trade volume China has with the US also provides it
the base for low-priced manufactured product exports to India,
which has not learnt from the woes of the US. America’s trade
deficit with China means that the US companies that can't
compete with cheap Chinese goods must either lower their costs
or go out of business.
It has already happened to many sectors in India, including
electrical, electronics and toys. Many Indian companies either
have gone out of business or have become houses that trade in
Chinese goods. Either way it leads to losing of jobs and the
edge that manufacturing sector gives to a country.
The US has learnt it the hard way. India is not in that kind
of a tight spot but still it has not taken any step to avoid
getting into the Chinese quagmire. It is indeed surprising
that New Delhi should woo China for closer trade ties. Nobody
knows why India supplies iron ore to China at ridiculous
export duty of one per cent. It is virtually subsidizing the
Chinese manufacturing sector, which is wrecking havoc with the
Indian economy. India has no obligation to supply iron ore to
China, which it uses also for building arms and other
strategic weapons, which are deployed on India’s borders and
facilitates movement to the Tibetan plateau.
India has permission for exporting only three of the agreed
list of 17 fruits and vegetables. Such exports hardly add any
value but Commerce Minister Anand Sharma has apparently cowed
down and almost begged China to increase that basket recently.
However, Beijing has refused entry to aviation and
entertainment sectors as well from where returns could be
high.
A low cost Yuan is detrimental to the Indian economy. Worse,
India has not sought any revision of the value of the Yuan
against the Rupee. It has neither taken any trade or
diplomatic initiative to contain China. And, larger trade with
China may further stymie growth of the Indian manufacturing
sector.
Additionally, the way it is gleeful over the US’ moves to
invest in India is yet another danger. The policy makers in
New Delhi overlook the recent announcements of US President
Barack Obama of encouraging three emerging economies – India,
China and Brazil – to buy more goods from the US to double
exports in five years. US Commerce Under-Secretary for
International Trade, Francisco Sanchez said this week: “That's
where the money is and that's where we need to focus”, noting
that 95 per cent of the world's consumers live outside the US.
The US with high unemployment rate of 10 per cent needs that
strategy. There has been minor increase in jobs in the private
sector as the US has decided to push its $1.4 trillion budget
deficit. It is also pushing its economy with virtual zero
interest rates. High deficits not only in the US but also by
all major European countries threaten an uneven global
competition. It would force India to hedge against artificial
values of most global currencies and price its goods
uneconomically.
India has not protested at the high budget deficit trends of
these countries. It has pushed up crude prices to $ 85 a
barrel from $ 65 to 69 a week ago as such deficits create
false hope of a US recovery, which is just not happening. It
certainly helps the oil companies, most of which are based in
the US, rake in huge profits. In other words, India and other
countries would be subsidizing US budget deficits.
The US has recently stated that it is borrowing less form the
rest of the world. In fact, it has honed up its strategy in
such a way that it does not need to borrow and the rest of the
world would subsidise its economy as it adopts devious
techniques. Importantly, India needs to be aware of this and
must sharpen its policies to guard against such subtle
onslaughts. More so when despite a thaw in the downtrend, job
prospects in India have not brightened up. That is the key to
a recovery.
If India falls prey to the policies of the US and China, the
prospect of its own recovery and consequent growth might get
muted. The policy makers need to stand up firmly and chalk out
an aggressive strategy to shield the country against such evil
maneuvers. The country does not need to succumb to the
temptation of increasing low-cost exports just to shore up
statistical presentations. – INFA
(Copyright India News & Feature Alliance)
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